Changing relative prices allocate scarce resources away from markets exhibiting excess supply and into markets in which there is excess demand

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Market failure

When the market mechanism leads to a misallocation of resources in the economy

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Missing market

A situation in which there is no market because the functions of prices have broken down

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Private good

A good which is excludable and rival

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Public good

A good that is non-excludable and non-rival

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Quasi-public good

A good which is not fully non-rival and/or where it is possible to exclude people from consuming the product

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Externality

A public good or a public bad where there is a benefit or an external cost

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Positive externality

This is when the social benefit is greater than the private benefit

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Negative externality

This is when the social cost is great than the private cost

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Production externality

An externality which may be positive or negative that is generated in the course of producing a good or service

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Consumption externality

An externality which may be positive or negative that is generated in the course of consuming a good or service

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Social benefit

This is the sum of private benefit + external benefit

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Merit good

A good for which the social benefit exceeds the private benefits

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Demerit good

A good for which the social costs exceeds the private costs

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Social costs

This is the sum of private costs + external costs

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Immmobility of labour

The inability of labour to move from one job to another

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Geographical immobility of labour

This occurs when workers find it difficult or impossible to move between jobs to other parts of the country or other countries

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Occupational immobility of labour

This occurs when workers find it difficult or impossible to move between jobs as they lack the skills required for the new job

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Equity

Fairness or justness

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Inequity

Unfairness or unjustness

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Distribution of income and wealth

The way in which income and wealth are divided among the population

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Regulation

This involves the imposition of rules, controls and constrains, which restrict freedom of economic action in the market place

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Tax

A compulsory levy imposed by the government to pay for its activities

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Price ceiling

This is a price above which it is illegal to trade. This can lead to excess demand

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Price floor

This is a price below which it is illegal to trade. This can lead to excess supply

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Government failure

This occurs when government intervention reduces economic welfare leading to an allocation of resources that is worse than the free-market outcome. This is also known as the law of unintended consequence